PracticeAuditThe corridors of power…

The corridors of power...

It is an unhappy coincidence - unhappy for the government that is - that it was Patricia Hewitt, Secretary of State for Trade and Industry, who announced a review of business practices on financial reporting and auditing after the collapse of Enron.

For Hewitt, before she entered Parliament in 1997, did a three-year stint as head of research at what was the consultancy arm of Enron’s auditors, Arthur Andersen.

Not that any suggestions of impropriety can be derived from that. But her connection only serves to revive the issue of the relations between Andersen and Labour.

Labour’s critics claim that Andersen has spent more than a decade cultivating Labour.

Under the Tories, Andersen was frozen out of government work over its audit of the DeLorean sports car firm which collapsed in 1981. But from 1990 onwards, it began to cosy up to Labour, formulating policies free of charge, raising a few eyebrows.

Cynics say the new announcement – which also includes a independent inquiry into the role of non-executive directors – is little more than a cosmetic exercise.

But it is more than that. As Ms Hewitt said: ‘We have all been shocked at the speed and scale of the collapse of Enron. We need to be sure that our systems of financial reporting and audit regulations are robust enough.’

What the government will almost certainly move towards is the compulsory rotation of auditors, or a requirement for regular retendering, to prevent cosy relationships being built up with clients.

It has already been pointed out that in the case of Equitable Life, auditors Ernst and Young remained in post for an entire century.

What is a fact is that the government had to be seen to be doing something in the wake of the Enron debacle. What is being formulated should, if it is put into practice, go some way to preventing from happening in this country the sort of calamity which flowed from Enron.

  • Chris Moncrieff is a senior political analyst for PA news

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